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Asset Price Bubbles

Overview

In both the industrialized and developing worlds, a distinctive feature of the last two decades has been prolonged buildups and sharp collapses in asset markets such as stock, housing, and exchange markets. The volatility has sparked intense debate in academic and policy circles over the appropriate monetary and regulatory response to dramatic market shifts.

This book examines asset price bubbles to further our understanding of the causes and implications of financial instability, focusing on the potential of central banks and regulatory agencies to prevent it. The book grew out of a conference jointly sponsored by the Federal Reserve Bank of Chicago and the World Bank Group in April 2002.

About the Editors

George G. Kaufman is John F. Smith, Jr. Professor of Economics and Finance at Loyola University in Chicago and a consultant at the Federal Reserve Bank of Chicago.

Michael Pomerleano is Lead Financial Specialist in the Financial Sector Development Department of the World Bank Group.

Endorsements

"How should policymakers react to asset price movements that cannot be explained by standard models? To answer this question, it is not enough to identify a bubble and understand its origins. One needs also to predict the impact of monetary policy on an event that is by its nature difficult to explain. While comprehensive answers are scarce, this wonderful and comprehensive collection of readings marks an important step forward, and will provide plenty of food for thought and debate." —Richard Brealey, London Business School

"It is dangerous to develop pricing theories without a knowledge of the history of asset prices and the role of institutions and policymakers in affecting them. This timely volume presents competing perspectives on the existence and consequences of bubbles in asset markets, and asks what, if anything, should be done about them. It will be of interest to financial economists as well as macroeconomists and policymakers." —Michael Brennan, Professor Emeritus, University of California, Los Angeles